NARFE concerned with provisions in House payroll tax cut bill

Julie Tagen, legislative director, NARFE

Federal employees need to pay attention to what's going on in Congress right now if they're at all concerned about the future of their retirement plan. The original version of the House payroll tax bill passed last week includes a provision that would eliminate the FERS minimum supplement for individuals who are not subject to mandatory retirement. If enacted, this measure could go into effect as early as January 2013.

"The part that's troubling is that it makes it very difficult for an employee under the FERS system without that supplement to retire before age 62, because at that point they would only have their FERS annuity and potentially their TSP," said Julie Tagen, legislative director for the National Association of Active and Retired Federal Employees (NARFE). "They're relying on this annuity supplement in order to retire before age 62."

The Senate passed a two-month extension of the payroll tax cut last weekend and sent it back to the House for approval. Federal pay and benefits were untouched in that bill, with the tax cut being paid for through fees on Fannie Mae, Freddie Mac and the Federal Housing Administration. However, the House planned a vote today rejecting the Senate plan. It was also ready to vote to formally request the Senate to begin fresh talks on the legislation.

"The FERS minimum supplement represents the amount the employee would've received under Social Security if they were 62 years old on the day they retired," said Tagen. "From everything I know, the House is hoping that they'll vote on a bill that puts some of these provisions back in, that could include this annuity supplement as well."

The original House bill also included language calling for FERS and CSRS employees to contribute 0.5 percent more to their retirement for the next three years, for a total of 1.5 percent. It also sets up a new retirement category called "security annuity employees," which would apply to future employees and employees who have less than five years of service.

"Those employees would pay 10.2 percent of their salary to the FERS-defined benefit program," Tagen said. "They would also base their retirement on their highest five years of service, not their highest three that's currently there. They would be using a different multiplier that would really reduce the benefit by about 38 percent when they go to retire. That's very, very troubling to us and we're going to fight to make sure that at least there are some hearings on this and that future employees get a say when Congress is going to make such drastic changes to the federal retirement system."

According to Tagen, the Congressional Budget Office estimates that the provision would reduce federal spending by $1.6 billion over 10 years. "That is not a lot of an offset," she said. "It's our hope that this will come out of any version that makes it to the final."

For the average employee, the first supplement payment would equal what they would have received if they were on Social Security. Tagen said NARFE plans to fight to have this and other provisions that scapegoat federal employees taken out of the bills.